The following is the Pivotal Events that was published for our subscribers
January 17, 2013.
Signs of the Times
Last July, ECB chief Mario Draghi stated the he would "do whatever it takes
to preserve the euro". Quite likely this meant boosting the economy by boosting
credit, which means depreciation. And that sounds like the only way they can
preserve the euro is by trashing it. Sounds like fixing villages back in "Nam".
An outstanding contrast continues. The European economy remains weak and there
has been an international party in stock markets.
"German exports declined more than economists forecast...down 3.4%. It's
the steepest decline in more than a year."
~ Bloomberg, January 9
"Emerging equity funds recorded their biggest-ever weekly inflows."
~ Bloomberg, January 11
"Industrial output in Spain dropped for a 15th straight month in November
- twice the rate forecast."
~ Bloomberg, January 11
"Investors coming back to stocks after withdrawing cash for the past six
years. Global equity mutual fund sales are the second-highest on data back
to 1996."
~ Bloomberg, January 11
And then there is US policy:
"You never want a serious crisis to go to waste."
~ Rahm Emanuel, February 9, 2009
"The whole aim of practical politics is to keep the populace alarmed (and
hence clamoring to be led to safety) by menacing it with an endless series
of hobgoblins, all of them imaginary."
~ H. L. Mencken, sometime in the 1930s
"Welcome to the Permanent Fiscal Emergency"
~ Slate, January 5
"Obama Warns of Crisis Unless Debt Ceiling is Raised"
~ The Examiner, January 15
Perspective
Well, the debt ceiling number has always been there, but it is often changed,
when it is expedient. Never down and always up, and lately, with some drama.
However, it does provide a chance for a voice of sobriety. The attached chart
by Ron Griess shows that the debt level already exceeds the "limit".
The political drama could more specifically be called "Theatre of the Absurd".
Only popular with the participants; the public and the markets could soon say "Enough!".
While we can hardly restrain our anticipation of such a revulsion, it would
be prudent to watch the charts.
Stock Markets
Of interest, recently, are the excesses being accomplished in housing, forest
products and lumber. Three weeks ago, the latter zoomed up to register an Upside
Exhaustion. It was the most overbought in 20 years. Of importance is that typically
at important highs, the product (lumber) leads equities. And this could be
the case now.
Lumber's high was 392 on December 26, and the cyclical low was 138 in early
2009. Leading forestry stocks are still climbing. Even Canfor (CFP.TO) is into
the zoom zone. Enough to generate a rare "Trifecta", with Upside Exhaustions
on daily, weekly and monthly. The first break in price or momentum provides
the "Sell". Today's high is 18.50 and the 2009 low was 4.38.
This sector has always been cyclical, and all the signs of a cyclical peak
are building now.
The last cyclical peak identified was in base metal prices in May 2011, on
our Momentum Peak Forecaster. It is curious that metals peaked then and it
could be due to the global market. Whereas, lumber and forestry seems to be
mainly a North American market.
Another important cyclical company, Canadian Pacific Railway (CP) is becoming
the most overbought since 2007 - a fateful year. Ross is working on a more
detailed review.
Out of the setback into early November stocks, lower-grade bonds and commodities
were likely to rally into January.
This has been working out and, for example, the S&P could make into the
1490s, and then become tired.
New York seems to be working on an important top. One indication is complacency
with the VIX declining to 13.16 earlier today. This is the lowest since 2007.
Also, over the past two weeks the RSI recorded a huge swing from overbought
to oversold. Complacency seems ready for a trend change.
Moreover, a number of exchanges around the world are at levels of extreme
confidence. This was covered in Tuesday's ChartWorks.
Currencies
Along with the fun, the US dollar was expected to decline into January, and
so far the move has been modest. The high in November was 81.46 and this month's
low has been 79.35, which seems to be testing the 79 level set in December.
There is a lot of support at the 79 level and the action remains in a longer-term
pattern that leads to an intermediate rally.
The Canadian dollar started its rally at 99.43 in November and the first move
took it to 101.8 four weeks ago. Then it reached 101.9 a week ago. It could
reach resistance in the 102s.
Commodities
Lumber has been the feature on a possible rally for most commodities into
January. In setting a spike lumber became very overbought at 392. The initial
low was 371.5 and the bounce has been to 382. Today's close at 369 sets the
downtrend and ends the bull move that started at 225 in June 2011.
Base metals (GYX) accomplished a rally from 359 in November to 403 at the
beginning of the year. There is resistance at the 404 level and much more at
425.
It is likely that base metals will be vulnerable to weakening lumber prices.
Agricultural prices (GKX) did not participate in the good times. The index
became extremely overbought with the drought in July. The high was 533 and
the low at 437 a week ago. This drove the daily RSI down to 24. This is enough
for the action to stabilize. In preparation for an intermediate rally.
Crude has enjoyed a rally from 84 in November to 96 today. This is now overbought
and eligible for a significant correction.
Precious Metals
The action is still dominated by the "dangerous" overbought accomplished in
September. The daily RSI on the silver/gold ratio soared to 84. Anything above
the high 70s has been associated with important tops.
Going the other way, when the RSI gets below 30 it suggests accumulation.
The low was 28 in late December. Continue to accumulate.
In dollar terms, gold was likely to find support at the 1650 level. More support
was possible at 1600. The base was mainly at 1650 with one spike down to 1626.
The initial move made it to 1695 earlier today. This seems due for a rest.
We keep track of the real price via our Gold/Commodities Index. In November
it got up to 468 and with the "good times" declined to the 375 level and has
been setting a base. A rally would confirm that all the recent hot stuff is
rolling over.
Debt "Ceiling" Has Been Exceeded
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TheChartStore
- "Welcome to the permanent fiscal emergency."
~ Slate, January 5, 2013
- "You never want a serious crisis to go to waste."
~ Rahm Emanuel, February 9, 2009
- "Ben Bernanke: Get rid of the debt ceiling."
~The Examiner, January 14, 2013
- "Obama warns of crisis unless debt ceiling is raised."
~The Examiner, January 15, 2013
FED Holdings of Treasury Issues
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Image - Image courtesy of TheChartStore
Gold/Commodities Index
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Link to January 19, 2013 'Bob and Phil Show' on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2013/01/market-tops-vix-dips